Are range bound for XAUUSD?

As the U.S. Congress passed a historic US$52 billion (about RM231.76 billion) federal programme to boost domestic chipmaking capabilities, it included one significant caveat: Companies that receive the funding have to promise not to increase their production of advanced chips in China.

It's a condition that will certainly add to escalating tensions between Washington and Beijing. The curbs will hit companies like Intel Corp and Taiwan Semiconductor Manufacturing Co (TSMC), leading chipmakers that have tried to build their businesses in China. TSMC won't be able to substantially upgrade or expand its existing facilities, effectively losing some growth opportunities in the world's biggest semiconductor market.

Specifically, the CHIPS and Science Act bars companies that get federal funding from materially expanding production of chips more advanced than 28-nanometres in China — or a country of concern like Russia — for 10 years. While 28-nanometre chips are several generations behind the most cutting-edge semiconductors available now, they are still used in a wide range of products, including cars and smartphones. The ban covers both logic and memory chips.

An exception can be made if the chipmakers concerned are adding production of 28-nanometre semiconductors or older generations to serve the China market predominately or the foreign country of concern involved. Recipients who violate the restrictions and fail to remedy the breach may need to pay back the federal subsidies in full.

The White House, which is expected to sign the Act shortly, has voiced its support for the measure.

Intel has been lobbying hard against the move to curb U.S. investments in China's chip sector. In late 2021, the American chipmaker wanted to increase production in China, but that plan was spurned by the White House.

Intel ended up selling its wafer plant in Dalian to South Korea's SK Hynix Inc, as part of a broader deal for the American company's NAND memory business. Intel still has chip packaging and testing facilities in China.

"Legislation this complex and important requires input from all stakeholders. Intel and many companies in our industry have come together with our trade association to provide input to policymakers in order to ensure that we have the best legislation possible, and don't inadvertently undermine the global competitiveness of companies that receive CHIPS funds," Intel spokeswoman Nancy Sanchez said.

While China's chipmaking champion Semiconductor Manufacturing International Corp (SMIC) can make chips that are more advanced than 28 nanometres, its technology is still at least six years behind industry leader TSMC.

SMIC has been facing virtually insurmountable challenges in catching up with TSMC, after former U.S. president Donald Trump's administration pressured the Dutch government to prevent ASML from selling its most cutting-edge extreme ultraviolet lithography systems to China. The Chinese chip industry encountered a further setback in recent days, as Washington had quietly tightened China's access to relatively advanced chip equipment, sending stocks tumbling.

A large chunk of the federal grant is expected to go to Intel, TSMC and South Korea's Samsung Electronics Co, all of which are now building new chip fabrication facilities worth tens of billions in the US.

Among potential recipients of the federal grant, only TSMC is making relatively advanced chips in China at the moment. Its facility in the southern Chinese city of Nanjing makes 28-nanometre and more advanced 16-nanometre chips, roughly the equivalent of the most sophisticated product SMIC can make.

TSMC and Samsung declined to comment.

Peace activists and community members on Monday protested US House Speaker Nancy Pelosi's expected visit to Taiwan, demanding that she cancel the trip and focus on issues facing ordinary Americans.

The rally, organized by a few groups, included members of Pivot to Peace, ANSWER Coalition, CODEPINK, Veterans for Peace and leaders of the Chinese community. People from different walks of life participated, holding signs proclaiming that "China is one", "US hands off Taiwan", and chanting, "China is not our enemy."

"China is not an existential threat. What is an existential threat is racism and American policy that drives us to war. … The Cold War tactics and agenda by leaders, particularly Pelosi, is unwarranted," said Julie Tang, co-founder of Pivot to Peace and a retired Superior Court judge in San Francisco, at the rally outside Pelosi's local district office.

"Let's together join up and urge her to come home and deal with our local issues, homelessness, monkeypox and all those issues that are killing our people," Tang said.

In past decades, US-China relations have had ups and downs, said David Ewing, San Francisco chapter president of the US-China Peoples Friendship Association, but Pelosi's planned trip is "one of the more dangerous moments".

"China has always sought peace and friendship with the American people," he said, but he said the actions of the US in the last year or two — the challenges to Chinese territories in the Pacific and now more direct intervention in Taiwan, are "very reckless".

Pelosi is expected to visit Taiwan on Tuesday and stay overnight, according to media reports, though the island is not currently on her public itinerary.

The California Democrat had previously planned to lead a US congressional delegation to Taiwan in April but canceled the trip after she tested positive for the coronavirus.

She would be the highest-level US official to go to Taiwan since 1997, when then- House Speaker Newt Gingrich made a visit.

"There is no basis for Speaker Pelosi, the third person in succession to the presidency, to travel to Taiwan in disregard of the commitments made by our government," said the protesters in a statement.

In the three joint communiques issued by the United States and China in 1972, 1975 and 1982, the US acknowledged that there is only one China, and that Taiwan is a part of China. That one-China policy was echoed by the protesters Monday.

"Speaker Pelosi and other political leaders and office holders should be directing their attention to solving the problems facing our country, not to provoking tension and possible confrontation with China," they said.

"The people of this country are hurting," Cynthia Papermaster, CODEPINK's chapter coordinator in the San Francisco Bay Area, told China Daily at the rally.

"I have an electric car but my colleague who came over today said it cost her $100 at the gas pump. That's just one symptom of the problems, but people are living on the street; children are going hungry every night; veterans need support; the climate is burning all over the US," she said.

"All of those resources and her attention should be focused on us here at home, and then whatever resources we have to help other people as well. We're all one world, aren't we?" said Papermaster. "Pelosi really needs to open her heart and feel what we're saying."

Bob Spies, a web developer in the Bay Area, started a petition calling on Pelosi to cancel the Taiwan trip. The petition has received more than 1,300 signatures in five days.

"It's continuing to gain more," said Spies. He will deliver the petition to Pelosi's office when it reaches 2,000.

"We need her back here working on the problems we have in this country because we certainly have enough of them. And we don't need her over there trying to inflame tensions and potentially get us into a nuclear conflict," Spies told China Daily.

Pelosi's possible visit to Taiwan has resulted in stern warnings from Beijing and mounting concerns in Washington.

China's Defense Ministry has warned of serious consequences of a visit. The Chinese military will "absolutely not sit idle" if Pelosi visits Taiwan, it said.

"By disregarding the advice of many experts and forging ahead with her plan to visit Taiwan, Nancy Pelosi has imperiled regional and even global peace. History will judge her very harshly. And we will all pay the price for her shortsightedness," Stephen Roddy, professor of East Asian Studies at the University of San Francisco told China Daily.

Maybe the publicity of a visit by Pelosi to Taiwan will help her Democratic Party in the midterm elections in November, said George Koo, a retired international business advisor in Silicon Valley, but as the speaker of the House of Representatives, her actions represent the official position of the country.

"If you step over the red line China has laid down, it can't back down and not react. We don't know what its response would be, but it would be dangerous — potentially explosive, in fact," said Koo.

U.S. ISM Manufacturing PMI registered 52.8 in July, the lowest value since June 2020 (at 52.4), compared with the expected 52 by the market and the June reading of 53.

Among them, the New Orders Index dropped to 48, compared to the June reading of 49.2. The Employment Index registered 49.9, compared to the June value of 47.3. The index contracted for the third straight month. The Price Index recorded 60, compared to the June reading of 78.5. It is the lowest value since August 2020 (at 59.5).

The U.S. manufacturing sector continues expanding — though slightly less so in July — as new order rates continue to contract, supplier deliveries improve and prices soften to acceptable levels.

Three of the five sub-indexes that directly factor into the Manufacturing PMI (Production, Supplier Deliveries and Inventories) were in growth territory. Of the six biggest manufacturing industries, four — Petroleum & Coal Products; Computer & Electronic Products; Transportation Equipment; and Machinery — registered moderate-to-strong growth in July.

Only one of the six largest manufacturing sectors — Computer & Electronic Products — increased new orders at a moderate level. Lead times remain at elevated levels, and fundamental raw material prices continue to persuade buyers to remain on the sidelines. Also contributing to order-placement pauses are concerns about future economic growth slowing and the impact to manufacturing inventories caused by additional order placements. Backlogs continued to sag due to the weakness in new orders. Of the 18 manufacturing industries, four reported growth in new orders in July. Seven industries reported a decline in new orders in July. Seven industries reported no change in new orders in July as compared to June.

In the employment index, of the six big manufacturing sectors, three (Transportation Equipment; Petroleum & Coal Products; and Machinery) expanded. Employment levels, driven primarily by turnover, remain the top issue affecting production growth.

The Prices Index has been at or above 60% for 23 straight months. The slowing in price increases is being driven by (1) volatility in the energy markets, (2) softening in the copper, steel, aluminum and corrugate markets, and (3) a significant decrease in chemical demand.

1. "If she dares to go, then let's wait and see," the Chinese Foreign Ministry spokesman answers reporters' questions on Pelosi's trip to Taiwan.

2. The U.S. intends to expand the restrictions on China's access to chips of up to 14 nanometers.

3. Singapore will welcome its fourth generation of leaders after 57 years of independence.

4. Putin: There will be no winners in a nuclear war.

5. Kosovo and Serbia tensions rise as car license certification issue stirs sovereignty sensitivity.

Nancy Pelosi's identity as the No. 3 in the U.S. government determines that her visit to Taiwan is bound to be highly sensitive, said Zhao Lijian, Chinese Foreign Ministry spokesman. No matter when and in what way Pelosi goes to Taiwan, it will be a serious violation of the one-China principle and the provisions of the Three Joint Communiqués between China and the United States, seriously damaging Sino-US relations, and will certainly cause bad political impact. If Speaker Pelosi visits Taiwan, China will take firm responses and strong countermeasures to defend its sovereignty and territorial integrity.

The U.S. intends to expand the restrictions on exports of chip technology to China. U.S. restrictions on technology exports to China will be further expanded to foundries producing chips below 14 nanometers, said Tim Archer, chairman and CEO of U.S. chip equipment maker Lam Research Corporation (NASDAQ: LRCX), in response to analysts' questions at an earnings meeting on July 27 local time.

Lam Research is working with the U.S. government and intends to fully comply with the above notice, said Archer. The potential impact on Lam Research's business is included in the earnings guidance given in the earnings report for the next quarter.

According to Lam Research's second-quarter (ended June 27) earnings report, its total revenue rose 14% quarter-on-quarter to $4.64 billion, with 31% of the revenue coming from China, followed by Korea (24%), Taiwan (19%), the U.S. (8%), Europe (7%), Japan (6%), and Southeast Asia (5%). Lam Research's guidance for the next quarter forecasts revenue to rise $300 million or 6.1% QoQ to $4.9 billion.

Chip makers such as SMIC have been already on the U.S. "Entity List." A blatant new restriction like this will broaden the current restrictions from individual companies to the whole of China - all relevant machines manufacturing in China will be affected.

As the debate over "domestic inequality" in Singapore comes to the fore, this young nation, which will celebrate its 57th national day on August 9, is undergoing a major power shift.

After a long and tortuous selection process, Finance Minister Lawrence Wong Shyun Tsai, considered a "non-elite" figure, was selected in April this year as the core of the fourth generation leadership of Singapore's ruling People's Action Party (PAP). The 49-year-old Lawrence was elected by his peers of the same generation to lead the next generation of Singapore's leadership, replacing former Deputy Prime Minister Heng Swee Keat, who abruptly stepped down from his role as successor to incumbent Prime Minister Lee Hsien Loong in April 2021.

From June this year, Lawrence Wong Shyun Tsai began his tenure as Singapore's Deputy Prime Minister and continued to serve as Finance Minister, starting to "warm up" in order to succeed the 70-year-old incumbent Prime Minister Lee Hsien Loong at the right time.

There will be no winners in a nuclear war and a nuclear war should not be waged, said Russian President Vladimir Putin on August 1. According to a statement published on the Kremlin's website on August 1, Putin sent a letter to the 10th Review Conference of the Treaty on the Non-Proliferation of Nuclear Weapons on the occasion of its opening, saying that Russia believes that there will be no winners in a nuclear war and that a nuclear war should not be waged.

A new round of tensions has emerged since July 31 between Serbia and Kosovo, over which Serbia has a long-standing sovereignty dispute.

This round of tensions arose from the long-standing issues of car license certification and identity document issuance between the two sides. The Kosovo administration has announced that citizens with documents issued by the Serbian government, as well as vehicles with Serbian license plates, will be banned from entering Kosovo from August 1.

On the same day, in northern Kosovo, some Serbian protesters in Kosovo blocked roads at two key crossing points to Serbia.

On the evening of July 31, Serbian President Aleksandar Vučić issued a national address, saying that Kosovo police would begin a "military operation" against Serbs in northern Kosovo at midnight. Shortly thereafter, gunfire was heard along Serbia's de facto border with Kosovo, and local authorities sounded a military alert. All of these developments have raised long-standing tensions in the region to the highest level in recent years.

12:30 Australian Overnight Lending Rate

14:00 U.K. Nationwide House Price Index MoM (Jul)

15:00 Switzerland Consumer Confidence Index (Q3)

20:00 New Zealand Milk Auction

22:00 U.S. JOLTS Job Openings (SA) (Jun)

The Reserve Bank of India will hike its key interest rate on Friday, economists polled by Reuters said, but there was no consensus on the size of the move given the absence of any clear guidance from the central bank.

With inflation running at a near-decade high and the rupee trading near a record low, the RBI, which only began raising rates in May, is expected to front-load subsequent hikes to catch up with its global peers.

Predictions from the 63 economists polled between July 25 and Aug. 1 ranged from a 25 basis point hike to one of 50 bps when the RBI meets on Aug. 5.

Over 40% of economists, 26 of 63, expected the RBI to go for a hefty 50 bps hike, taking the repo rate to 5.40%. More than one-quarter of respondents, 20 of 63, forecast a smaller 35 bp hike. About 22%, 14 of 63, said 25 bps while the remaining three said 40 bps.

"The RBI should provide some clarity of thought, but when there's so much uncertainty, it's better not to come out with an expectation and then not able to match up to that," said Kunal Kundu, India economist at Societe Generale, who predicted a 50 bp rise.

A slim majority of economists, 35 of 63, saw the repo rate already reaching 5.75% or higher by end-year, up 10 bps from a July poll, while the median expectation is for at least 6% in the second quarter of next year.

The RBI has raised rates twice so far in this cycle, first catching markets off guard with a 40 bps hike at an unscheduled meeting, followed by 50 bps in June.

Kaushik Das, chief economist at Deutsche Bank, said the bank hoped the RBI would agree on the merits of front-loading rate hikes.

"The RBI can always reduce the pace of rate hikes from September onwards if inflation and growth momentum softens, but we think it is a risky strategy at this stage to be an outlier in delivering less than 50 bp rate hikes."

The outlook for next year was even less clear, with end-2023 forecasts ranging from 4.75% to 6.75%.

With the RBI a relative laggard in the global tightening cycle, India has seen heavy capital outflows, which have helped drag the rupee to lifetime lows close to 80 per U.S. dollar.

With the dollar expected to remain strong in the short- to medium-term, the RBI has few options to defend the rupee without burning through foreign currency reserves.

Just over half of respondents, 20 of 38, who answered an additional question said the exchange rate is playing a larger than normal role in the RBI's interest rate deliberations.

"Front-loaded rate hikes by the RBI will be complementary to their FX intervention towards managing the rupee's exchange rate," said Sanjay Mathur, chief economist for Southeast Asia and India at ANZ.

Asian markets will likely adopt a very defensive posture today after it became clear overnight that US House Speaker, Nancy Pelosi, would make what is reported in the FT today as an “ill-conceived visit” to Taiwan. Pelosi is scheduled to meet with Taiwan's political leaders on Wednesday, but she may arrive in Taiwan today.

US stocks overnight were slightly weaker, but probably have not yet responded to this latest news. The USD continued to soften yesterday, though rising tensions in Asia may lift the bid for the USD today. The AUD pulled above 70 cents yesterday, though could find itself under pressure today once the RBA decision is out of the way. Cable continues to recover from earlier weakness ahead of what is expected to be a 50bp rate hike from the Bank of England on Thursday. And the JPY is finding new strength in the post-peak rate-hike world, dropping to 131.53. Asian currencies were mixed on Monday, with the THB massively outperforming the rest of the pack on thoughts of BoT tightening from this month as well as recovering tourism receipts and capital inflows. 2Y US Treasury yields fell 1.4bp to 2.87%, while the 10Y bond yield fell a further 7.6bp to 2.573%. As we noted recently, 2.5% for the 10Y UST makes sense given our Fed funds view for 2023 and 2024. Lower than that would suggest a rethink to a sub-2% Dec 2024 Fed funds rate, or a sub 3% Dec 2023 Fed funds rate.

The US July Manufacturing ISM index included glimmers of good news. The headline index fell slightly less than anticipated to 52.8 from 53.0, but there was a big fall in the prices paid index to 60.0 from 78.5. The employment index remained in contraction territory, but at 49.9, was better than the June figure of 47.3. There is little of note on the G-7 macro calendar today.

We expect that China will send warplanes near Taiwan or even over Taiwan before, during and after Pelosi’s visit to Taiwan. The US National Security Council spokesman repeated three times that 'there is just no reason for this (referring to Pelosi's visit to Taiwan) to escalate". It seems that the US has underestimated or misread President Xi's stance on Taiwan. The determination of Xi on uniting Taiwan with Mainland China is extremely firm. We should see weakness in CNY and TWD over the coming days.

The Reserve Bank of Australia will announce its latest rate decision at 1230 SGT today, and we concur with the market expectation for a 50bp rise, taking the cash rate target to 1.85%. Governor Lowe delivers the RBA’s Monetary Policy Statement on Friday, which could add some detail to the latest decision. We anticipate that rates will rise a further 50bp at the next meeting, before possibly easing to a 25bp pace for the remainder of the year.

The July CPI inflation rate rose to 6.3%YoY (vs. 6.0% in June), in line with the market consensus. Fresh food and utility inflation rose to 13%YoY and 15.7%, respectively due to bad weather and higher electricity and gas rates. Although the headline hit its highest level since November 1998, underlying price pressures are gradually stabilizing as the monthly uptrend has slowed and the core inflation excluding energy and food stayed at 3.9% for the second month. We think the BoK will pay more attention to the rate of increase in the price index and not the level itself from now on.

Also, BoK Governor Rhee yesterday reaffirmed at the National Assembly Committee that future policy rate hikes would be data-dependent and that the usual 25bp pace of increase would be appropriate if inflation remains as the BoK projects. Thus, we expect the Bank of Korea to raise 25bp at its August meeting.